Networx draws praise, questions

Industry responds <@SM>to revised strategy for telecom program

By Roseanne Gerin

Aug 26, 2004

What's the deal?

Name of contract: FTS Networx

Value: $10 billion

Description: The FTS Networx telecommunications and network contract will replace the government's FTS2001 contract, which expires in 2006. Networx is divided into two acquisitions called Universal and Enterprise. Universal favors large carriers with national infrastructures and requires service to all wire centers that serve government customers. Enterprise is for systems integrators and other IT companies that can offer expanded services and new technologies.

Length of contract: 10 years (four years with three two-year options for both Universal and Enterprise awards)

Major revisions from original strategy: The requirement for service to all wire centers nationwide was changed to only those centers that serve government customers.

The requirement for "switched voice" was redefined as simply "voice" to provide opportunities for other technologies.

The previous Select service was renamed Enterprise. Universal and Enterprise awards will be made at or near the same time.

The number of billing requirements for the program has been reduced by 62 percent. GSA slashed data elements to the minimum required. GSA is still working with its technical and pricing groups to align the billing and ordering requirements.

The number of requirements for wire-center pricing has been reduced by 70 percent. Fixed prices will be required; pricing structures will adhere to commercial practices where possible; price structures will vary by location, bandwidth or capacity and performance level where appropriate.

FTS Networx and multiple award schedules are complementary, and each can be used as the customers desire. Other GSA contracts also may complement and support FTS Acquisitions.

Minimum revenue guarantees will be small compared to those of FTS2001. GSA will give specifics in the final RFPs.

Regarding GSA's plan to issue firm fixed-price contracts for the Networx telecom program, Qwest's Tony Bardo said, "There's way too much risk to have their products now priced 10 years out."

J. Adam Fenster

The General Services Administration's revised strategy for the $10 billion Federal Technology Services Networx telecommunications contract has been widely hailed by industry, but some companies have lingering concerns about the changes.

The new plan, unveiled Aug. 11 by GSA officials, addresses many of industry's complaints regarding the agency's initial strategy for Networx, which will offer a wide range of telecom services to government offices throughout the United States.

About 500 industry representatives attended the announcement and praised GSA's efforts to accommodate many different types of companies as possible bidders. Industry also lauded GSA for other changes, such as dividing the program into two contract vehicles and reducing the pricing and billing requirements for Networx contractors.

But some contractors are concerned the second part of the Networx program, known as Enterprise, will generate higher profit margins than the Universal part. They also question GSA's plan that would let agencies buy telecom services using schedule contracts as well as Networx. And they worry that GSA is not allowing enough time to transition from the old FTS2001 contract to Networx.

GSA "still has a few loose ends to work out from a process standpoint, but the structure of the procurement is in place," said Anthony D'Agata, vice president and general manager of Sprint Corp.'s government systems division.

BACK TO THE BEGINNING

In October 2003, GSA issued a request for information for Networx, which will replace the federal telecom contract FTS2001 when it expires in 2006. From December 2003 to January 2004, GSA evaluated the nearly 750 responses from industry to develop a revised Networx plan. The agency announced the new strategy in early August and will release full details Nov. 1 in two draft requests for proposals, one for each part of the program.

The original Networx proposal was divided into two acquisitions called Universal and Select. Universal favored large telco carriers with nationwide networks, while Select was designed for systems integrators and other IT companies that could offer specialized services, but did not have a nationwide reach.

In its new strategy, GSA retained the Universal component but renamed the Select part Enterprise, although it remains fundamentally the same. For the Universal portion, GSA eliminated its original requirement that contractors provide services to all wire centers nationwide. The new strategy calls for them to deliver services only to wire centers that are required to serve government customers.

Wire centers are locations from which public telcos provide local services that connect to customer equipment. For the Networx program, the wire centers also may provide points of connectivity between local and long-distance service.

Contractors could face some resource challenges if they decide to bid on both Universal and Enterprise, D'Agata said. Sprint is one of the two incumbents on the FTS2001 contract, and its services expire in December 2006.

Sprint will bid on the Universal, D'Agata said, but it has yet to decide whether to bid on Enterprise. The company will create two separate teams if it bids on both parts, he said.

An industry insider who requested anonymity said it appeared that the high-bandwidth services under Enterprise would deliver higher margins for providers than Universal, which would provide services at lower bandwidths.

"It's causing certain large participants to think about why they are bidding Universal when Enterprise may be a better deal," he said.

Natasha Habould, an MCI Inc. spokeswoman, said her company didn't see this as a problem. MCI, the other incumbent on FTS2001, will bid on both Universal and Enterprise, she said.

In its revamped Networx plan, GSA also eliminated its phased approach to awarding the Universal and Enterprise components. Originally, Universal was to be awarded first, and the Select awards were to follow about nine months later. But industry complained that the winners of Universal would have an unfair head start.

An industry official said it would be difficult for the government to manage the simultaneous introduction of Universal and Enterprise, and that the issue begged the question of whether two separate acquisition components are needed.

Some companies expressed concern that agencies can use GSA schedules as well as Networx to buy telecom services. Sprint's D'Agata said he would prefer seeing scheduled elements in only one of the two Networx contract components "because it makes the contracting process a little more efficient."

He added that it is more common and convenient for agencies to buy off a single contract.

Some companies also raised questions about GSA's plans for issuing firm fixed-price Universal and Enterprise contracts that consist of four years with three two-year option periods. Carriers, in particular, would have difficulty predicting prices over the life of the 10-year Networx contract because they don't control some parts of the telco network -- specifically the local loop, said Tony Bardo, senior director of civilian agency sales and marketing at Qwest Communications International Inc.

"There's way too much risk to have their products now priced 10 years out," he said.

GSA's plan to issue the Networx awards in April 2006 is another concern for some companies. Large carriers said they would not have enough time to complete a smooth transition from FTS2001 to Networx, even though other companies will provide crossover services during the transition.

It took Sprint, for example, about two years to complete the transition from the former FTS program to FTS2001, D'Agata said.

If GSA doesn't issue the awards by April 2006 as planned, it may have to extend the FTS2001 contracts an additional year, Bardo said.

Staff Writer Roseanne Gerin can be reached at rgerin@postnewsweektech.com.

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